NAI Hunneman Research Director Liz Berthelette Recaps NAIOP/SIOR Market Forecast

This morning NAIOP Massachusetts hosted its annual Market Forecast. The expert panel presented to a packed-room of real estate professionals; covering topics related to the economy, local and national property markets as well as capital markets. While the organization’s mid-year roundup highlighted somewhat slower market conditions, this time around all of the panelists were resoundingly positive. Below are just some of the key takeaways from today’s event:

State House - MA

Economic Overview – Barry Bluestone

  1. Massachusetts maintains a strong and buoyant economy; outperforming the national average for the majority of the last 8 years. With the addition of more than 355,000 jobs since 2009, the Bay State is nearing full employment. As a result, real wages are beginning to rise.
  2. While we are attracting and retaining more young professionals, the housing stock remains limited. Home and condo sales continue to rise but at a slower clip. Median sale prices continue to climb across the board, despite a decline in ownership rates, however, lack of affordability is pushing more people further out into the suburbs. For condo owners, however, the urban core remains the top destination.
  3. In the multifamily market, rent growth is starting to stabilize due to new construction. Young people moving in the city are still driving up rents, particularly among the 1-3-unit buildings.
  4. In terms of demographics, Boston’s population base is expected to reach 724,000 and the greater metro area is slated to increase to 4.5 million.

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Cambridge Overview – Molly Heath

  1. Cambridge remains one of the strongest markets in the country. With companies continuing to move into the market (and pay a premium for space), vacancies are sub-3%. Current asking rents are 18% above any previous peak in the office market and 23% above any previous peak in the lab market. Achieved rents have hit the low-$90s/SF for office and the low-$80/SF NNN for lab!
  2. Demand for commercial space in Cambridge remains strong, with 600,000 square feet of lab leases/commitments so far in Q4 in East Cambridge. Over the last five years, 3.3 million square feet of demand has come from outside of the market and 190,000 square feet has come from the growing coworking industry.
  3. For new construction in the pipeline, which has grown to 7.5 million square feet, speed to market is critical. Projects like 399 Binney Street and 121 First Street are expected to fully leased (or close to it) by the time they deliver. Redevelopment projects at 100 Massachusetts Ave and 26 Landsdowne are also fully committed.
  4. Final thoughts include a prediction for more speculative development, continued demand from coworking operators and Cambridge demand spilling into neighboring markets like Watertown and Somerville.

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Suburban Overview – John Carroll III

  1. The suburbs are alive and well! The market continues to see steady rent growth, with the high-water mark in the low-$50’s/SF for new construction in Waltham. Most of the gains have occurred in the Class A market, with growth in Class B properties not as strong.
  2. In the Metrowest, demand for big blocks of office has been slow. While there is a 200,000-square-foot commitment out on Technology Drive in Westborough, this lease will be offset by Computer Associates’ relocation to Burlington and Staples may put some space on the market in Framingham.
  3. In the South office market, fundamentals remain positive and there is no sublease space available. Reebok’s former campus in Canton is reportedly under agreement with an undisclosed buyer.
  4. In the Central markets, demand remains strong. Tesaro is out for 300,000-500,000 square feet and Alkermes is reportedly nearly committed to a 220,000-square-foot build-to-suit in Waltham. Several older buildings are being repositioned into newer office and lab space; including 275 Second Avenue and 1560 Trapelo Road. As office supply continues to decline, landlords will push rents in 2018.


Downtown Overview – Ron Perry

  1. 2017 has been a year of evolution for the Downtown market. Amazon, PTC, Alexion, Rapid7, Wayfair, and WeWork have all been expanding here. Of the 4.5 million square feet in office requirements out in the market, 55% are in tech-related industries. Moreover, the tenant migration from outside of Boston has been a major driver of office demand in recent years.
  2. On the construction front, there is 11 million square feet in the pipeline, but only 10% is actually under construction. In terms of the where the next tower will likely be built in Downtown Boston, Ron predicted that North Station (Hub on the Causeway, specifically) makes sense.
  3. Looking ahead, vacancies will continue to decline through 2020 (reaching sub-7%) and the Downtown market will see 500,000-1,000,000 in net absorption during that time.


Industrial Overview – J.R. McDonald

  1. At a macro level, industrial is the big winner in term of annual returns; outstripping all other asset classes. This is due to cap rate compression as well as strong fundamentals. The nation’s 6 largest industrial/distribution markets drove much of this activity.
  2. E-commerce is the new industrial demand drive as consumer shopping patterns continue to shift. IN 2016, 52% of Americans used Amazon Prime. In New England, regional retailers used to drive industrial demand, but online shopping has changed this trend.
  3. Fundamental statistics point to development. With vacancies in the single-digit range here in Greater Boston, rent growth has been frothy in the industrial market. Boston seems ripe for development. However, infill sites (where industrial users want to be) are also in high-demand from developers that want to go vertical with office or multifamily construction.
  4. As a result, infill locations and urban land sites are hot. Rents are being driven well above historical norms.
  5. The future remains bright for the industrial market.


Capital Markets Overview – Ben Sayles

  1. The capital markets discussion kicked-off with a look at several macro trends. Overall, investment sales remain abundant but measured, and dry powder is at an all-time high; at $141 Billion. The end of cycle concerns we were hearing about 1-2 years ago have largely abated. However, sellers are worried about how they will redeploy capital if they were to sell in this market. Pricing has been largely flat over the last year. Lastly, financing volume is up while sales volume is down.
  2. In terms of foreign capital, the US still looks attractive on a global basis and investment should continue to come flow into the country.
  3. Boston is faring well compared to many other US markets, ranking 6th in terms of year-to-date transaction volume. In terms of the most desirable product type in this market, industrial is at the top of everyone’s list. Creative office is also a bright spot, while lab space will be a huge focus in the upcoming year. Class B office product in Downtown Boston has had a huge run and still has some legs, while Class A assets remain popular but TI loads could be problematic. Finally, suburban office is the most missed investment opportunity out there, but this isn’t likely to change.
  4. Looking ahead, the industrial asset class will remain top dog, Class B office still has a lot of room to run and Boston will continue to be a top-tier market.

The overall consensus was that Boston’s future remains bright!



Liz Berthelette is NAI Hunneman’s Director of Research. You can learn more about here on her bio or follow her on Twitter at @liz_berthelette.

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